The departure of Merrill Lynch's chief executive, Stan O'Neal, became a near certainty last night as Wall Street sources confirmed that he had lost the confidence of the investment bank's board.

Mr O'Neal told friends he had decided to step down rather than be ousted by fellow directors. A formal announcement could be made today after a series of boardroom discussions over the weekend.

He is the highest profile casualty yet from the credit crunch which swept through global financial markets in the summer, sparked by defaults on sub-prime mortgages.

Merrill lost $7.9bn (£3.8bn) in the crisis - more than any of its rivals - and suffered the worst financial quarter of its 93-year history. The bank's directors are unhappy with Mr O'Neal's perceived laissez-faire approach towards risk, and with his handling of the liabilities once they emerged.

Speculation about successors is rife. The bank's 15,000 brokers are likely to favour an internal candidate, such as Merrill's head of private client management Bob McCann or chief operating officer Gregory Fleming.

One external contender is Larry Fink, the chief executive of the $1.3 trillion investment management company Blackrock, in which Merrill has a 49% stake. Mr Fink has the advantage of being a former bond trader with deep understanding of the credit markets.

The debacle ends four years of leadership by Mr O'Neal, who grew up in a rural Alabama community and became the first black man to reach the top of a Wall Street bank.

When appointed, he pledged to shed the bank's conservative image which drew the nickname "mother Merrill". But having lost heavily on the credit markets, he has angered investors by failing to be clear about the extent of the bank's losses, initially estimated at $5bn and then raised to $7.9bn.

His relations with fellow directors reached a low point when he approached rival bank Wachovia about a merger without first seeking authorisation.

A retired Merrill chairman, Daniel Tully, described the bank's losses as "sickening". He told Bloomberg News: "With the help of God this too shall pass, and the firm will continue to do extraordinary well, but without the excessive risk that was apparently taken."